Ethena - A brief overview of USDe

The total stablecoin market cap, excluding algorithmic stables, has just hit a new all-time high
According to DeFiLlama, this surpasses the previous peak from early 2022
Fresh capital is flowing into crypto
And @ethena_labs has been at the forefront of the stablecoin world this year

1/
Stablecoins
Most crucial and widely adopted instruments in this space
Have found unmatched Product-Market Fit
- Over 90% of orderbook trades and 70% of onchain settlements are denominated in stablecoin pairs across both CEXs and DEXs
- Represent two of the top five largest crypto assets
- Account for more than 40% of the TVL in DeFi

2/
But there's a PROBLEM
Both centralized and decentralized stablecoins face challenges
- Centralized (USDC and USDT) are at risk due to reliance on traditional financial systems (read censorship)
- Decentralized grapple with scalability and design challenges
(DAI is capital inefficient due to over-collateralization)
Remember TERRA!
3/
Ethena's Solution
USDe ≠ Stablecoin
- Crypto-native synthetic dollar
- Scalable & capital-efficient
- Addresses the scalability challenges faced by decentralized stablecoins and the custodial risks of centralized ones (by moving collateral out of traditional banks)

4/
Ironically, USDe isn't the first delta-neutral synthetic dollar
Previous iterations (like UXD) relied on decentralized venues that lacked liquidity, weren't scalable & vulnerable to smart contract exploits
Open interest in CEXs is over 20x larger than in DEXs, highlighting the critical need to leverage CEX liquidity

5/
How is USDe different?
- Scalable and Stable
Through the use of derivatives, allowing USDe to scale efficiently with only 1:1 collateralization, as backing assets are perfectly hedged upon issuance with equivalent short positions ensuring the synthetic USD value remains secure
- Censorship Resistant
By keeping backing assets outside the banking system, stored onchain in transparent, auditable custody accounts

6/
In short,
Ethena operates entirely within the crypto ecosystem by opening a short position of the collateral asset
The system uses crypto collateral, crypto exchanges, and other crypto-based platforms, completely bypassing traditional banks
Ethena executes a delta-neutral trade using perpetual exchanges and captures yield on both sides
- Yield from staked ETH (collateral) on one side
- Yield from funding rates by shorting ETH on the other side

7/
Why should you look at USDe?
Provides a stable, onchain savings option
How?
Staking USDe automatically earns rewards
- Collateral includes staked Ethereum (ETH staking returns)
- Income from futures trading, like funding fees and basis spreads, is distributed to USDe stakeholders

8/
While USDe offers many benefits, it's not without risks
 *Ethena uses Off-Exchange Settlement providers to hold backing assets, allowing it to delegate & undelegate collateral to CEXs without being exposed to exchange-specific risks


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